2020 (3) TMI 685 - AT - Income Tax

Tribunal affirms deletion of penalty under Income Tax Act Section 271(1)(c) for lack of intentional concealment.

Income Tax Officer – 1 (2), Thane Versus Shri Mehul Indukumar Parekh, Mumbai

Income Tax Officer – 1 (2), Thane Versus Shri Mehul Indukumar Parekh, Mumbai - TMI Issues Involved:1. Justification of deleting the penalty levied under Section 271(1)(c) of the Income Tax Act.2. Assessment of non-genuine purchases and estimation of profit element.3. Validity of penalty on estimated income.4. Adherence to CBDT's Instruction No. 3/2018.Issue-wise Detailed Analysis:1. Justification of Deleting the Penalty Levied under Section 271(1)(c):The primary issue is whether the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)] was justified in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act. The revenue argued that the Ld.CIT(A) failed to appreciate the decisions of the Hon'ble Apex Court in the case of Mak Data Pvt. Ltd. Vs CIT and the Hon'ble Gujarat High Court's decision in the case of N. K. Proteins Ltd. The Assessing Officer (AO) had levied penalties on the grounds that the assessee had deliberately furnished inaccurate particulars of income and concealed income. However, the Ld.CIT(A) deleted the penalty, reasoning that the disallowance was based on an estimation of Gross Profit on the purchases, which does not justify a penalty under Section 271(1)(c).2. Assessment of Non-genuine Purchases and Estimation of Profit Element:The Assessing Officer treated certain purchases as non-genuine based on information from the Sales Tax Department, Mumbai, indicating that the assessee received accommodation entries without actual purchases. The AO estimated the profit element from these non-genuine purchases at 12.5% and brought it to tax. The assessee accepted this estimation and did not appeal further. The Tribunal noted that the AO made an adhoc estimation of profit on purchases treated as unexplained expenditure and did not doubt the sales made from such purchases. The Tribunal referenced similar cases, such as Shri Deepak Gogri v. Income Tax Officer, where penalties were not levied due to the adhoc nature of the estimation.3. Validity of Penalty on Estimated Income:The Tribunal emphasized that penalty cannot be levied when income is assessed on an estimate basis. Several precedents were cited, including the case of Harigopal Singh v. CIT, where the Hon'ble Punjab & Haryana High Court held that penalty under Section 271(1)(c) is not attracted when income is assessed on an estimate basis. The Tribunal also referenced the Hon'ble Delhi High Court's decision in CIT v. Aero Traders Pvt. Ltd., affirming that estimated profit does not amount to concealment or furnishing inaccurate particulars. The Tribunal concluded that the AO's estimation of Gross Profit on alleged non-genuine purchases lacked conclusive proof of concealment or furnishing inaccurate particulars, thus justifying the deletion of the penalty by the Ld.CIT(A).4. Adherence to CBDT's Instruction No. 3/2018:The revenue contended that the appeal was filed in accordance with the CBDT's Instruction No. 3/2018. However, the Tribunal found no merit in this argument, as the penalty was based on an adhoc estimation and not on concrete evidence of concealment or inaccurate particulars. The Tribunal upheld the Ld.CIT(A)'s order, rejecting the revenue's grounds of appeal.Conclusion:The Tribunal dismissed the revenue's appeals, affirming that penalties under Section 271(1)(c) are not justified when income is assessed based on adhoc estimations without concrete evidence of concealment or furnishing inaccurate particulars. The judgment underscores the principle that penalty provisions require clear proof of deliberate concealment or inaccuracies, which was not established in this case.